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Edited Transcript of EML.AX earnings conference call or presentation 16-Feb-21 10:00pm GMT

·68 min read

Half Year 2021 EML Payments Ltd Earnings Call Adelaide, South Australia Feb 17, 2021 (Thomson StreetEvents) -- Edited Transcript of EML Payments Ltd earnings conference call or presentation Tuesday, February 16, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Robert Shore EML Payments Limited - Group CFO * Thomas Anthony Cregan EML Payments Limited - Group CEO, MD & Director ================================================================================ Conference Call Participants ================================================================================ * Brendan Carrig Macquarie Research - Research Analyst * Elijah Mayr CLSA Limited, Research Division - Research Analyst * Garry Sherriff RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps * Ron Shamgar CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies * Wai Ming Kwok Keefe, Bruyette, & Woods, Inc., Research Division - VP * William Cunning ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the EML Payments Limited H1 Results Briefing Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Tom Cregan, Managing Director and Group CEO. Please go ahead. -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [2] -------------------------------------------------------------------------------- Thank you very much. Good morning, and welcome to the EML Payments' earnings call for the first half of the 2021 financial year. My name is Tom Cregan, Managing Director and Group Chief Executive Officer. And I'm joined today by Rob Shore, our Group Chief Financial Officer. We'll take you through our financial results in the half, a general business update and our financial guidance, which we are reinstituting. Given we're still in lockdown in Melbourne here, and will be here for 1 more day, let's hope we get through the next hour without my neighbor deciding to mow his lawn, my dog going off on a [tirade] or the local rubbish collection guy picking the bins up, which he is just about to start doing. So let's get into that and see how we go. As investors are aware, we removed our guidance in April of the 2020 financial year due to some immediate and some unknown impacts of COVID on our business. And we wanted to get through the 2020 holiday season and assess particularly the gift and incentive segment to determine how that would impact 2021 EBITDA before commencing formal guidance. And having now got to this position, we feel comfortable in putting a guidance range back in place for the financial year. As those who follow the company know, we've had a long-term strategy of diversification across multiple levels and a clear strategy of transitioning the company away from a reliance on gift card revenues into one that derives the majority of its revenues from GPR and programs. And in the first half of the FY '20, if we go back in time, we derived approximately 70% of revenues from the G&I segment. And in the first half of FY '21, we now see GPR revenues accounting for 57% of group revenues. Breakage on gift cards now accounts for something like 16% of revenues versus 40% in past results. This repositioning has really helped the company manage through the challenges that COVID has presented us with thus far. And obviously, the most notable of those challenges was the impact of lockdowns and curfews in Europe and Canada with most malls closed from the middle of December onwards in line with stage 4 and 5 restrictions. And those that did remain open did so on significantly reduced hours. Despite that, our diversification, I think, has continued to pay off with record first half EBITDA of $28.1 million, an increase of 42% on the prior comparative period. Had we not seen more closures in December that we did, arguably, our results would have been significantly north of $28 million of EBITDA, given 6% higher in December prior to those lockdowns occurring. GDV in the [Mall] segment was down $100 million against the prior comparative period, but offset by higher breakage rates, which minimized the gross profit impact of that volume decline and growth in our incentive programs overall. So despite the moving parts within the Gift segment, the segment was only down $3.4 million in gross profit on the prior comparative period, which I think was a great result. I hope you agree with me that this result demonstrates a key point, and that is that we are no longer in "a malls gift card company." And while we want to be successful in all of those verticals that we operate in, the malls vertical and that seasonality at the end of December is now the difference between a very good result and a great result as opposed to being fundamental to the result itself. And despite current lockdowns and curfews still in place in Canada, Italy, the U.K., France, Spain, Belgium, we could go on, we are guiding to a full year EBITDA result of between $50 million to $54 million, basically the midpoint of analyst consensus, which ranges from $48 million to $57 million. We'll obviously be steering towards the top end of that range, and we'll tighten that range as we get later into the financial year. If we can weather the COVID challenges and perform as we have in the first half and deliver on our full year guidance, then I'm genuinely excited to see what FY '22 and beyond holds as we -- as economic growth rebounds in North America and Europe and these economies and markets reopen. In addition to our financial results, we've continued to grow the business with the addition of new programs in all regions and have set the foundations for Project Accelerator, which is focused really on our transition to our platform-as-a-service broader digital payments business. This is obviously a summary of that strategy, but we will be investing in our technology and our infrastructure to support a single touch point integration as well as enhancing our sandbox capabilities and bring scheme agnostics and offering the same solutions across both scheme networks, Mastercard, Visa and others. We'll definitely become product centric, partnering with other companies and integrating their solutions into our own, providing additional functionality and value to our customers and to their cardholders, and we will look to invest in technology companies that can enhance in the first half of the financial year. We spent a lot of time on system design, project design, and we're now in build mode on several fronts. Commencing on Page 3 of the deck, investors will be well aware of our mission statement and our vision statement and purpose statement, which we launched late last year. We'll be providing more detailed update on Accelerator in the full year results, but I will talk about our FinLabs investments later on this morning. And hopefully, you'll see how they fit into that vision and purpose statement. Moving to Slide 4. And the main call out here is that we are becoming a larger business with 486 team members as of the half year. And we have continued to add to the team in the first half. We added approximately 36 employees in the first half, really as a response to the level of new business opportunities that we're seeing and projects associated with Accelerator. And we would expect to add another 10 to 15 employees by the end of the full year. We've never been a company that wanted to win what I call the headcount stakes. That's never really had much appeal to me. But we do outline later in the deck that we signed 69 contracts in the first half. We launched 64 programs and expanded our sales pipeline in the process. So to not be investing now would be the epitome of being penny-wise and pound-foolish if we want to continue to grow at a similar pace in future years. Rob will talk to our expense base, but we've previously guided last year so $66 million to $72 million. And that difference of $6 million was basically our short-term incentive plan and whether that would be achieved or not achieved. As you'll see later in the deck, we spent $39 million in the first half. And whilst some of those costs have decided to be first half in nature, such as EML fond and insurance and so on. We'd expect this level of expense to repeat in the second half, given it's largely headcount-related to sales supporting our expanding business, particularly in operations and onboarding into various Project Accelerator initiatives. We've guided for $76 million to $80 million for the full year. And the midpoint, I think, is where we're likely to end up. Moving on to Slide 5, and we're beginning to feel a strong start towards FY '21. Group GDV increased by 54%. Previously mentioned, EBITDA increased by 42% to $28.1 million. Operating cash flow was $34.8 million, which is 4x higher than the prior comparative period and 124% of EBITDA as a result of a couple of things. Number one, our transition to GPR revenue to a GPR business, where cash flows are going to be more in time with revenues. Cash conversion on breakage funds and great -- and a really great effort by our finance team to manage receivables and ensure that we're treating our cash with the importance that we should be treating it with. Those 3 initiatives, I think, had a great result of operating cash flow for the half. That cash flow into a (technical difficulty) [$9.8 million]. And in the half, with a cash balance of $136.5 million to 15% higher than what it was at the end of FY '20. That cash balance, in turn, provides the funding necessary for contingent earn-out payments on historical acquisitions without the need to raise funds and to continue to look at FinLabs investments and potential acquisitions. So they've got plenty of (inaudible) there, that shareholders should feel pretty good about. But I thought we might be precluded from full-scale M&A due to the logistics of travel and due diligence. But despite that, (inaudible) of deals in the industry, be they trade sales, mergers, back listings and so forth, it's pretty evident that the market has found. We're moving to Slide 6 and our results by segment. The most notable result here is in our GPR segment where revenue increased 314% to $54.4 million, with PFS generating $38 million of that $41 million increase. So in percentage terms, that also means in Salary Packaging and Gaming. In relation to gaming, just out of interest for investors, our [major] run rate in the U.S. is now about $200 million a year in GDV. So it's a positive result for the North American business, and it's a testament to the work that had been put into growing that market in years gone by. It's not -- it's within a bunch of brands that wouldn't be necessarily household names. They're not the FanDuels. They're not because revenues in that -- in our overall GPR segment will now be over $100 million for the first time, which is certainly a bell weather moment. But -- slightly, but most investors understand that CFS outsources its transaction processing and pays for access to the U.K. faster payment network. Therefore, has lower gross margins than the kind of pre-existing EML GPR business. So that's the reason for the decline versus any gross margin increases in that segment. And that will obviously flow through to the group gross profit margins and EBITDA margins. In the Gift & Incentive segment, as I said before, GDP in the Malls vertical declined by 19% offset by growth in our Incentives vertical of 11%. And whilst incentive programs convert at a lower rate than malls, largely due to lower breakage, collectively, they provide a larger opportunity for growth than the Mall's vertical. And within the Incentive segment, there are different yields for consumer incentive programs versus employee incentive programs, with employee incentive programs converting at a lower rate because if you're all given that by your employer, and you're seeing that affect their salary, and therefore, you're likely to try to use as much of that balance as you can. In the first half, we did see a definite shift from consumer programs to employee incentive programs, which makes sense given FMCG and other companies aren't investing in driving consumer demand for their programs when you've got lockdowns and curfews in place. That would make no sense. And employers were rewarding their staff financially just due to the challenges of that experience last year working under lockdown conditions, particularly in Europe. Partially offsetting lower volumes in the Mall segment was an increase in cash breakage rates, which, again, is logical, given people are visiting malls less. We were asked about this last year on a number of calls, we said it was a trend we were watching. We've been watching that trend carefully and working with our actuarial partners and banks and the data supported an increase in breakage of $5 million of upside, which obviously reduced the half year gross profit impact of lower volume. A great result in trying conditions. And again, it just talks about kind of natural hedge that exists for us in this business. And we've got additional breakage funds to recognize in the second half as well. As our cash flow would indicate there was a strong correlation between breakage accrual and cash conversion. But we've mentioned numerous times over the years that breakage can be significant in an aggregate sum but is insignificant at a per card level. And just out of interest for investors, we have COVID impacting usage because you're seeing lower redemption, therefore higher breakage. As the issue of these programs, we do allow cardholders to call us and push out the redemption period on their cards, and that's something we're always willing to accept their calls on. The number of calls we've received due to COVID is completely de minimis relative to level of our card sales. So we saw that again. We saw that in 10 years ago in the GSC, we saw it with double debt recessions in the U.K. We're seeing it now with COVID. And so that trend, I think, just continues. And ultimately, I think we'd expect that as we get to Christmas this year, and you've got progress with vaccines and the reopening of these cities and economies, we'll see a recovery of GDV in the Mall segment albeit with breakage rates that probably revert back to historical levels. The VANs segment was pretty much a steady state story. We had GDP growth of 6%. We onboarded 2 new clients in the half and expect to see more output from them in the next 12 months as well as on board additional clients in this current half. But really, the focus for us in the first half of this year was the integration of PFS. So we need to keep focused on the VANs segment for the reasons that we've mentioned previously. We won't spend time on Slide 8, but it details our track record of growth over the last 5 years. Just for a change, we're showing the monthly GDV in each segment that we thought investors would find interesting just on a month-to-month trend basis. The next few slides call out the movement in that Gift & Incentive segment, which I've spoken about before, but again, just more information. As we've discussed, the Malls segment saw a GDV decline of 19%, which only translated net-net into a gross profit decline of $3.4 million. In the current quarter, we would expect volumes to still be heavily impacted in that segment given restrictions and curfews are in place still in all those places. And volumes in January were down in the order of 50% on the PCP and similar trends in the first half of February. The quarter is not a key quarter for gift card sales. But nonetheless, plays into our EBITDA guidance for '21, given it makes sense to be conservative with guidance. The flip side of that and the positive side, again, referring back to GPR is that you can see the monthly volumes there for GPR. And in the month of December, PFS, just as a stand-alone business was slightly over GBP 300 million. And in February, February is a 28-day month, obviously. But if February was just standard 30-day months, we'd be over GBP 300 million again for this month. So the GPR segment is proving very resilient across the board, but also in Europe, despite those kind of conditions that still we find ourselves in. In Australia, where we weren't subject to mass lockdowns. Companies can run more consumer incentive programs. We actually ran 150 digital programs using our Pays technology. So that kind of demonstrates the trends we're seeing at incentive programs moving from physical to digital and some in industries that wouldn't have been able to support a physical card program. So positive to see, and hopefully, we see that in the regions -- in the other regions. We continue to saw new distribution partners, some of which are the bottom, some alive, some will launch in the coming months. And that's just key to continuing to grow the number of programs that we run. On the next 2 slides, before I hand off to Rob, there were several operational highlights that are worth noting I mentioned the biz development front earlier in terms of 79 contracts and 64 programs. Our sales pipeline expanded, and our win rate for new business was 39%. So we were asked that by investors last year. We said we would kind of commit to providing some information on that. And that's the first time we've really looked at that number. So we'll continue to measure that in future periods. But in a competitive global prepaid market, winning 4 out of 10, we think is a pretty good win rate. Obviously, we would be hoping that initiatives related to Accelerator or other things can kind of increase that win rate going forward. It's also worth noting that when we talk about a pipeline of 408 prospects, the future GDV at maturity that we believe we will see from this pipeline translates back to the programs we believe we will win. So we're not taking a number of $8 billion that we believe is the maturity on the current pipeline in 3 to 4 years on the assumption we're going to win 408 prospects. It's on the assumption that we're going to win what our current close rate is. Moving on, we launched a payout program for PayPal in Ireland and converted existing cards in markets that were managed by a competitor. That migration was completed in December, fully -- so it's been fully active now for several weeks. And that will certainly be a positive for our Gaming segment in the second half and beyond. In PFS -- the PFS kind of EML business has been given the green light to become a direct member of faster payments in the U.K. and that should be fully implemented by the end of the financial year, resulting in savings of approximately GBP 480,000. That was one of the main synergy projects when we acquired PFS, and it will be a positive to head into '22 -- FY '22 with those savings hitting the bottom line. Also in the U.K., we've gone live with Phase 1 of a program for the home office and expect this to be fully implemented by the end of the financial year as well, which gives us a good lead up in -- good lead into FY '22. In the salary [tech] vertical, we continued the transition of accounts with smart growth we ended the quarter with 282,000 accounts, now 286,000 accounts. And we expect to hit 300,000 accounts in financial Q4 of this year. In the (inaudible) lending vertical, we continue to add new partners, including LIBOR strategy and so and others. But I think it's worth noting that because those companies are early stage businesses, it's worth noting that when we launched MoneyMe, a year or so ago, I think it's now 15 months. The cumulative GDV for that program now stands at $23 million. And that's a number that MoneyMe is comfortable with me sharing. Otherwise, we don't normally share customer data. So that goes back to the kind of cohort analysis that we took investors through last year. And how GBV starts from a low base on some of these programs that we're adding and then builds over time, and that's the kind of compound growth factor that benefits us in the business. In the government sector, we actually ended the half with 561 active programs, which I think talks largely to the presence we've got in the U.K., but also in some other European countries. We've seen local councils and other governments expand the number of programs they run due to COVID, with funding for programs such as domestic violence, mental illness, welfare and so on. And I think as we come out of lockdown, we will see country ends that will be in the hundreds of millions of dollars. So similar to what the Australian government have done here with sector-specific support. I think we'll see that to a pretty significant degree across Europe as these economies reopen. Locally, we signed a deal with (inaudible) that some people may know, another ASX-listed business. Who are working to cross-sell our card program into their corporate expense programs, they managed for more than 100 kind of government agencies as well as working on additional opportunities, such as the (inaudible). And we also announced the pilot with the New South Wales Department of Transport, along with Mastercard and the Commonwealth Bank to launch the pilot of the digital [April] card, which could be significant for us in (inaudible) years as well, as that pilot moves into full launch mode. And there's major coverage on that front that investors can look at and keep abreast of. And finally, just a short word on our first 2 FinLabs investments. We've completed the system's integrations for Interchecks. We've signed 2 contracts. Actually, I think that could be 3. As of today, we've got 15 in the pipeline. And the common theme is providing corporates with both card and non-card payout and pay-in options. So the ability to pay a customer in several ways. So for example, one of those first contracted customers is in what we call the earned wage access base in North America, where companies are facilitating employees drawing down on their salaries flexibly during their pay cycle as opposed to just on a due date. And their customers might want to draw that partial salary down into a card into a bank account or a combination thereof. But they want one provider to support both solutions as opposed to having to use 2 suppliers. In a simple sense, that's what FinLabs is about and ties back to our vision of providing customers with a simple single touch point as well as enhancing our product capabilities for scheme and non-scheme payments. FinLabs allows us -- that -- looking at that investment, FinLabs allows us to invest and obtain that technology today versus build it and take 2 years to build because it'd be competing with other internal projects. And we missed the most in what is an increasingly fast-paced industry. Hydrogen is almost complete from a systems integration perspective with a likely launch in Q4, financial Q4 this year. With revenue generation into FY '22, which is in line with previous updates that we've given to the market. And pleasingly, they've had over 100 companies to go from beta testing to integrate onto that platform. So again, should provide us with just an additional lever for growth in the years to come. And with that, I'll -- Rob, I'll hand over to you for the rest of the presentation. -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [3] -------------------------------------------------------------------------------- Thanks, Tom. Good morning, everyone. I'm going to take you through the financial results review starting on Slide 14 of the pack. In summary, I mean, the first 6 months of the FY '21 financial year have delivered a really strong set of results. And it's a record start in all key measures, including gross debit volumes, $10.2 billion, that's up 54% on last year. Revenues, $95.3 million, that's up 61% on last year. EBITDA, 28.1 million, up 42%. NPATA, 13.2 million, up 30%. So some really strong set of P&L measures, but also pleasingly, really strong cash flow measures, underlying cash inflows of $35.1 million at the operating level or 125% conversion to EBITDA. So definitely a strong start to the FY '21 year. Putting that in context, these 6 months results are pretty close or ahead of what we delivered in the full 12 months of FY '19. So strong growth in that 18-month period despite challenging trading conditions in many of our key markets, as Tom highlighted earlier. PFS, which we acquired 1st of April 2020 was consolidated into the financial results for the full 6 months of the current period. I'm looking at Slide 15 now, group GDV, there are some key takeaways to highlight on that page. We forecast this a number of times previously, but to drill at home again, the general purpose with all of the segments is our largest segment in terms of gross debit volume, the largest segment in terms of revenue and gross profit, and it's our fastest-growing segment, both acquisitive growth and organic growth, which is a really good story. PFS. Looking first at PFS, it performed well in most of their key verticals, particularly in the digital banking and the U.K. government verticals and then continuing to launch new programs, and we definitely see strong periods of growth to come from this business. Organic growth in the sort of non-PFS remainder of the GPR segment was also strong, had growth of over 20% or over the PCP. The transition of Salary Packaging programs in Australia is nearing completion. We've got over 282,000 accounts live at the end of December. And the growth in this vertical in the first 6 months of the year is going to annualize through into the second half and into future periods. Gaming disbursements also grew strongly domestically in Australia and overseas, particularly with the launch of Poker Winnings disbursement program in the U.S. and the program with Paddy Power in Europe in December 2020. So they'll both benefit the second half in full. In the Gift & Incentive segment, we saw reduced volumes in the malls that were down about 19% due to global closures, social distancing, lockdowns in various key markets during the period. It's impossible to accurately quantify the impact of COVID on the segment. But we'd estimate it will certainly be more than $100 million of GDV, which is it's impactful, it's significantly impactful, but it's definitely better than what we're seeing at the start of the pandemic. And trading conditions, though, did deteriorate in early to mid-December. As Canadian European lockdowns became more severe. We continue to see significant impact on the segment volumes in January 2021. We're forecasting to start to see improvements in quarter 4 of this year. So whilst we saw more volumes impacted, we did see growth in incentives or non-mall programs. They're up 11% with new programs launching, taking advantage of our digital solutions for employee engagement, customer engagement, marketing programs and the like. In the VANs segment, it was relatively flat volumes, ended the 6 months with the December run rate of $815 million of monthly GDV, gives us some optimism for the remainder of FY '21. And we're equally optimistic about stronger growth given our sales pipeline in this segment. Looking at Slide 16. The 6 months delivered record revenues were up 61% to $95.3 million. The majority of our revenues are generated from recurring revenue streams in the GPR segment. The GPR segment accounts for about 57% of group revenues in the period. Growth in the GPR segment was both acquisitive and organic. And so PFS contributed about $38 million of revenue with broad growth across their business and their verticals they operate in. The remainder of the GPR segment contributed about $16.5 million of revenue, and revenue grew 25% on the prior comparative period. Organic growth before was sourced from Australian payroll, salary packaging programs, where we're approaching an annualized volumes of $2.5 billion a year in global gaming disbursements where we exit December with an annualized run rate approximating $1 billion. Revenue yield in the GPR segment was consistent with the prior quarterly yields for the last 2 or 3 quarters of about 112 basis points. The Gift & Incentive segment contributed 37% of group revenues. And in the 6 months December 31, we made about 16% of group revenues from breakage. So it's significantly down in any of the prior periods, and it will continue to fall as a percentage of group revenue through to the full year results. We flagged previously that we've spent a significant amount of time evaluating with our third-party statisticians and North American sponsor banks, evidence of low redemptions on more programs. So this is likely due to lockdown and social distancing, reducing traffic in the malls and consequently reducing card spend over a 12- to 18-month period post activation of the card through the pandemic. This is translating into higher breakage rates. We've taken a conservative approach, and we've only adjusted for cards issued earlier in the first of December 2019. So where we've got more than 12 months of data that have lapsed (inaudible) loaded. And that gives us a high degree of confidence in the data. And we expect to do more work on this through the second half, and we expect to see further upside in the second half. The overall revenue yield for the Gift & Incentive segment was ahead of expectations of 467 basis points due to the adjustment above to brokerage rate which has started to convert to cash in February 2021 and will be received into cash in full by June 30, 2021. The VAN segment stabilized actual run rate exceeding $100 million in December, consistent revenue yield of 13 basis points. Central Bank interest rates on our cardholder flows have been a headwind across all the segments, when we've seen lower interest rates throughout the period and negative interest rates in the Eurozone. We incurred net negative interest rates on our European liquid float balance, so that's the amount not invested. That cost is an expense of approximately $0.5 million in the first half. The global treasury team works very hard to minimize the impact through term deposits or government-backed bond investments. But this is cost, and we remain cautious about the risk of further drops in Central Bank interest rates, particularly in the U.K. and the Eurozone. Our total float is approximately $1.8 billion, $1.9 billion worldwide. And we should see -- should we see rising interest rates in future years, we would be a beneficiary of that. Moving to Slide 17. At a headline level, gross profit rose to $67.3 million, slightly lower margins of 71% due to a segment mix towards GPR and the dilutive impact of consolidating PFS. PFS outsources payment processing and its fast payment connections, resulting in lower gross profit margins for that business. These were 2 synergies that we identified in the acquisition thesis, and we're on track to bring a direct connection to faster payments online by June 2021, and that will deliver a savings of approximately $0.5 million in FY '22. The project to bring processing in house remains on track and as a target completion date by the end of FY '23. We continue to regard cash overheads as a percentage of revenue as a key metric of operating performance, and we ran at 41% of revenue, which was down slightly from 42% in the prior comparative period. The majority of the increase over PCP, about 90% of it relates to the acquisition of PFS being consolidated for the -- employment-related expenses make up 69% of the group cash overhead. That's really reflective of the nature of our business. The employment costs, as a percentage of revenue remain consistent. Despite increasing accruals for cash based, short-term incentive plan expenses to reflect the likely maximum achievement for several of our businesses in the FY '21 year. So we're running ahead of our expectations for overheads, went above our expectations in the half year. There's a few reasons. Firstly, the highest [difficult] because the business performance has been strong. Secondly, we capitalized internal development time capital to less internal development time at $4.8 million. Than we expected -- the $4.8 million replaced the depreciation amortization charge of $4.6 million in the period. So excluding the acquired assets that we'll be amortizing because we really spend more time on maintenance activities, and maintenance activities and replacement activities are expensed rather than new functionality, which is capitalized. But the accelerated projects move from design into the build phase in the second half. We expect this capitalization rate to increase. We also chose to exceed -- thirdly, chose to exceed the overheads target given the business is performing well, and there's a strong level of new contract signings and a strong pipeline. So it's important to continue to invest in wells that drive growth, such as customer onboarding, product and IT teams. The increased spend has been directed to high-growth areas, including PFS as we're integrating that business into EML. As a result, our cash overhead guidance for the full year moves up to $76 million to $80 million. On Slide 18, and the outcome of this is an EBITDA of $28.1 million for the 6 months to December 31. This continues our track record of growth, which is now a 5-year CAGR of 56%. On Slide 18, we're reconciling between EBITDA and NPATA. And there are a couple of highlights to call out. Depreciation and amortization of $13.9 million at the statutory level, 67% of that relates to amortization of acquired intangibles. So they're fair value uplift that we do when we buy a business. The BAU element of that is $4.6 million, which is included in the NPATA measure. So you'll see that on the bridge. Share-based payments relate to executive STIP and senior leadership LTIP and are included in the NPATA number. Other expenses is mostly foreign exchange on translation of foreign currency balance sheet items. And then the next one is we incurred an expense of $24.9 million, which is mostly in relation to bringing up the contingent consideration payable for the acquisition of PFS to our current estimates of their trading performance. So we made an estimate of contingent consideration payable when we made the acquisition in end of march 2020, and all the forecasts were conservative at that time, including the vendor forecasts, so don't forget the vendors at the time have just accepted a price reduction of more than $180 million. Since March 2020, we've seen a rapid recovery and improvement in trading in that business. This has been particularly evident in the 6 months we're reviewing now. So we're now forecasting the PFS will achieve their maximum earn-out over the 3 year assessment period. So now we're at the maximum, the will be no further expense to be booked in future periods, and the first payment will fall due based on actual results to June 30, 2021. That will fall due in August 2021. So it does impact the statutory NPAT number, but it very much relates to the acquisition of PFS. And so it's excluded from the NPATA and EBITDA numbers. Looking at the balance sheet on Slide 19. The first call out is that we split our card other assets of $1.63 billion and liability [owed] to cardholders of the same amount. These are the amounts held on behalf of our customers and cardholders the direct offset by the liabilities to those same cardholders. So we'll concentrate on the corporate balance sheet column. The group's sitting on a surplus cash of $136.5 million with no secured debt. Our businesses are cash generative. So I'll discuss in more detail on the next slide, and we're also holding a contract asset or breakage accrual assets of $29.1 million, of which $18.4 million is expected to convert to cash over the next 12 months. The group central bank interest rates on the cardholder slide. So in terms of the funding, it's $136 million of cash, $29.1 million of breakage and a bond premium of $6.5 million. Moving on to the cash flow on Slide 20. The business continued to generate a significant amount of operating cash inflows with a new record cash inflow of $35.1 million, which is 125% of EBITDA. We've previously forecasted that cash conversion would be more than EBITDA. It's due to the timing of breakage converting into cash. So we've converted more into cash than we accrued in the period from July to December. Alongside, a strong focus on improving working capital by the funds team. We expect strong cash inflow performance to continue through FY '21, although as Gift & Incentive volumes improve in quarter 4 and beyond into FY '22, we would expect to accrue more breakage. And therefore, we'd expect to see a working capital be investment at that time. We continue to invest in internally generated software development capitalized $4.8 million of CapEx related to building the technology that's going to drive the group's growth in future periods. And as Tom mentioned earlier, investors should expect this to increase in the second half as accelerate projects move from the design phase into the build phase. We made 2 FinLabs investments into (technical difficulty) $9.8 million in the period. Moving on to Slide 22 and looking at our guidance for the full year 2021. There's still a number of moving parts, and these will firm up as we get further into half 2. And so that's driving $50 million to $54 million at the EBITDA level. The most material impact is driving the forecast range is really the European, U.K. and Canadian lockdowns and the timing of when more CDDs and trading conditions improve. Business performed well with less harsh lockdown conditions in the July to October period last year and early November. So we do expect to see a rapid recovery once the conditions improve. We've assumed that we'll see tough conditions continue through to March, the end of March, and we'll see improvements through quarter 4. We will recognize $3.8 million of brokerage, and that's in the second half, and that's carried over from first half given incentive activations, down on the prior comparative period where we carried over $6.8 million and that's due to lower unit sales in the first half, and particularly the timing of weaker cells in the immediate weeks running into Christmas in that December period as well. Foreign exchange rates and interest rate -- or foreign exchange currency rates and interest rates are outside of our control, our guidance is based on no material changes to the rates that we saw in force at 31st of December. Operating cash flow is expected to be strong for the second half and will be around 90% to 110% of EBITDA for the full year, we think. So that's our guidance numbers for FY '21. With that, operator, I'll open the line up to any questions for Tom and I. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Garry Sherriff with RBC. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [2] -------------------------------------------------------------------------------- Tom and Rob, just a few questions. Firstly, looking at GPR, you guys said you had really strong growth in Salary Packaging, up 60% and Gaming up over 40%, but the PCP growth was 25%. So I'm just trying to figure out what segments might have dragged down that overall growth rate? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [3] -------------------------------------------------------------------------------- I think when you -- I'm not sure we've seen 60% and 40%. I think the overall for the -- there's a lot of different moving parts, but the Salary Packaging is probably the big piece, the growth in the accounts from June 30, to December 31, isn't sort of a straight-line between the 2 so that's really going to -- that 282,000 that we finished the December 31, is it what's going to annualize through the second half. Does that answers your question? -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [4] -------------------------------------------------------------------------------- Yes. Sorry, my mistake. The guidance that you guys are looking at in terms of what you're talking about lockdowns in April, does that mean we should be seeing a similar level of restrictions as the U.S. or are we talking pre-COVID type lockdown or no lockdown, I guess. I'm just trying to get a sense on, certainly, the next couple of months are looking tough or you're assuming that, but when you talk about post that, what are you assuming? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [5] -------------------------------------------------------------------------------- You want me to take that one? -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [6] -------------------------------------------------------------------------------- Yes, sure. -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [7] -------------------------------------------------------------------------------- Yes, yes. I mean, I think in kind of a simple term, if you look at the Q1 result of this year, which was, I guess, the first quarter coming out of COVID. I guess, the Q4 of FY '20 was the one that was most impactful within that Gift business. We -- our Q4, our Q1 EBITDA number was [$10 million]. And so obviously, you've seen [$18 million] in the second half. So I think it's a fairly safe assumption to think that this quarter and the next quarter with the growth in GPR kind of higher than what it was back in that same quarter means that it's a fairly good bet to say that each of the next 2 quarters would be not be an (inaudible) or thereabouts in EBITDA plus growth. So the $50 million is a conservative number. I mean, we've got to get ourselves a range because we understand -- you miss the number, you get hung. So there's no point for bravery when it comes to guidance, but we'll be steering towards that kind of that $54 million range. But I think we've got the benefit, if you like, you've almost got the benefit of being at $28.1 million plus the $3.5 million of AASB. So you really get -- in an accounting sense, you couldn't look at it this way, but you're effectively at [31.5%], really. And so to 2 quarters similar to the first quarter that we did this year. But again, wouldn't have had any or AASB carryover, trying to get you to that [52] in range, and then it's a question of getting up above that. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [8] -------------------------------------------------------------------------------- Yes, that's clear. Thanks, Tom. And the last question. Thank you for providing the win rates at 39%. How does that look historically? Is that in line? Or is that lower or is that mine than your historical win rates if you've got that information? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [9] -------------------------------------------------------------------------------- Actually, we've never looked at it. Yes. And the first time we've looked at it, which might have (inaudible) to investors, but we invested in HubSpot last year. So we integrated that to enable us to have greater kind of granularity on the deals in the pipeline. And then you can post audit after the fact how did they perform relative to the forecast that we put in there during the period. It helps us look at how quickly these programs are being closed and quickly they're being implemented. So that took us 6 months to implement in the first half. I'm not sure we really had that number until now. So in the past, we're just been focused on, I think, winning the more material deals. There's 2 parts of that win rate in the (inaudible) number, and I don't really have anything to go on other than the fact that it sounds intuitively good to be winning 40% of deals globally across countries where we have multiple competitors. So I think it's a very positive number. Can it get better with project accelerator? You might think so because that would be why we'd be investing in that in the first (inaudible), but there is a (inaudible) 408 deals in the pipeline in that work that was a side where -- that are in that pipeline that we consider we have clearly, we've win a real running and those 10 probably was $20 million to $30 million in revenue. So they're not all granular. So you bring 70% of deals, but if those 70% of deals are small fintech startup businesses. It's a great number, but it's not really going to translate to the bottom line. So there's a balance -- there of -- you've got to have a good win rate, but you've got to win the 1 that's better. The deals that could be bought on that should bring, million forward really is as opposed to just winning every deal because (inaudible). -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [10] -------------------------------------------------------------------------------- Sorry, just going back to that first question. So I am looking at (inaudible) Slide of your performance. And that's where I'm seeing the Salary Packaging revenue up 60% presale and gaming revenue up 42% PCP. And I think you had made a (inaudible) PFS had grown 25% on PCP. So again, I'm just trying to figure out, there must be other segments, I guess, which are dragging down the non-PFS. -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [11] -------------------------------------------------------------------------------- Yes. I mean you got -- that's really comparing those individual segments against each other, right? So it's a relative performance of those programs again to sell and then in the rest of the GPR, you got a whole bunch of programs everything from (inaudible) on cap charge price program. There's a whole vast [variety by too] the -- I mean, there's always ups and downs, and that's why we try and say, look at the segment as a whole rather than trying to drill it into individual pieces and going down into 50 different parts because it doesn't really add a lot of value. -------------------------------------------------------------------------------- Garry Sherriff, RBC Capital Markets, Research Division - Executive Director of Equity Research & Head of Australian Technology and Small-Mid Caps [12] -------------------------------------------------------------------------------- Yes. No, understood, Rob. No, I do quite a bit of nitpicking. -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [13] -------------------------------------------------------------------------------- It's all going up and down a little time, and it's just the nature of the industry, like our customer success is some are going to be indifferent periods, and we don't really control that. And so that's why we think it's better to look at the overall picture just as cleaner and easier. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Your next question comes from Steven Kwok with KBW. -------------------------------------------------------------------------------- Wai Ming Kwok, Keefe, Bruyette, & Woods, Inc., Research Division - VP [15] -------------------------------------------------------------------------------- The guidance is very helpful. Guess my first question is just around the M&A pipeline, given you have substantial amount of cash on hand. Can you just talk about the pipeline, like what verticals or geographies you're currently looking at? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [16] -------------------------------------------------------------------------------- Yes, I can do. I mean, the -- look, in terms of geographies at the moment, largely North America and Europe, because we have [reached] up our executive is over the years, by design. And so in North America, there aren't lockdowns. So people can travel for work and we're not being (inaudible) about it, I mean our head office is Kansas City. But the chance of getting COVID in Kansas City would be the same as you -- that of getting it in New York. So people can travel for business and conduct on-site (inaudible) and spend time with companies that we're looking to acquire. And I think the same was the case in Europe really until the lockdown middle of December, and I think once that eases then. Then that will pick up again. There aren't any real challenges getting out of Australia for those countries. So we -- myself and Rob and my team at here have just got to rely on doing that more through online means because we just secluded from physically going somewhere on [DD.] So geographically, they're going to be the 2 main areas. From a product perspective -- from an M&A perspective, where at the moment, not trying to buy scale for the sake of stuff. So for example, if there was a company that was like us in the prepaid space in the U.S., and buying that business for the sake of scale would probably be a lower priority than kind of the folks here on their own organic growth or I like that company had significant growth of itself and then that would propel our earnings. One of the things we're looking at a lot is the FinLabs investment thing, those part of investments, technology companies (inaudible) figuring quicker than (inaudible) white (inaudible). We're doing a lot of work with the company (inaudible) open banking perspective. We think that, that is just another evolution of payments. In a way, it (inaudible) open banking company because they're sending to people's bank accounts through those (inaudible) rentals or Mastercard schemes. So they're still using schemes, but direct payment to the opposing card payment, we see that as a banking process, the next generation of payments is sort of the payments to (inaudible). So we're doing a lot of work in that space, enough for quite a while. There were some unbelievable evaluation that's based on -- you got to be pretty selective, but I think I can say that allows them buying a lot of the investments amply in the U.S., with the added value (inaudible) it would probably be something like that and sort of product capability that enables us to have faster organic growth. -------------------------------------------------------------------------------- Wai Ming Kwok, Keefe, Bruyette, & Woods, Inc., Research Division - VP [17] -------------------------------------------------------------------------------- And my followup question is just around the customer base you have, like do you feel like with the pandemic, has anything changed? You mentioned around the prepaid space and stuff like that, is there a chance that it can come back and then you could have -- to reverse the breakage or is that permanent? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [18] -------------------------------------------------------------------------------- Yes. it's permanent. (inaudible) a period. So Australia it might be profound, in U.S. it would be 3 months. In Germany in March like those 3 years because there are different consumer protection laws, but (inaudible) a period with, first of all, anything like that that occurs with -- in a big breakage. Breakages always hit for every 9 years. It's a good asset to have because -- and you've got to be battle-tested for this stuff. So in the past where we had accrual, we had unit volumes really very going up and we had breakage accrual going up in line with (inaudible) and in the last it was something like that. (inaudible) unit sale of the cash reposition from products you sell, (inaudible) that's why we got really positive cash. That's the natural hedge within that gist of our business. And I think that tough Christmas this year is (inaudible) reopen in higher unit sale volumes, and then you're starting to rebuild that accrual base again. So I don't -- in then 10 years I've been here, there's been no (inaudible) no change through all manner of economic (inaudible) and downturns. So we see this as just a fundamental part of the business, but clearly the PFS acquisition and our vision in technology was really pivoting to do (inaudible) because that is more of (inaudible) that's more keeping with out vision of our digital payments. So that's where the positive level focus of the business will be that we are in the years to come, for sure. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Your next question comes from the line of Elijah Mayr with CLSA. -------------------------------------------------------------------------------- Elijah Mayr, CLSA Limited, Research Division - Research Analyst [20] -------------------------------------------------------------------------------- I just wanted to drill into the OpEx a little more one, just so I got this right. So the OpEx number and the overhead number being where it was, was more result of the endpoint of costs associated with the PFS being above expectations. Is that the right way to look at this? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [21] -------------------------------------------------------------------------------- Not, part of it would be a bit, but mainly (inaudible) surprise and the level of activity in the first half, and I think we regave the -- when we (inaudible) it would have been the full year results, I think what we were talking about is where we see the cost base being. The $72 million would have been full STIP budget. (inaudible) difference between the $56 million and the $72 million. And when we started the year with a lot of -- still with a lot of uncertainty, I think, around COVID and how that would impact trading conditions, then [$56 million] would have been the low end of that, if you budgeted for trading additions being within budget, and then $72 million would have been the cost base. We -- Accelerator -- I think we've added 35 heads in that half and about 18 of them are Accelerator-related. If my memory serves me right, and, Rob, correct me if not, the other [7, 8 and 18] headcount supporting sales, incremental salespeople, making operations team, onboarding because we've got to get these -- I mean, we can have a pipeline of 102, 103, 104 opportunities, but the rubber hits the road when these programs are actually launched. And so I think there's a resource -- there a plug you don't want to have there because you want to be able to get programs to marketers as quick as you can make it. So largely headcount, half of which would be Accelerator, half of which would be OpEx largely riding to driving growth. The others in my mind are (inaudible) amount of our like insurance went up, but every company has stringed out of (inaudible) on things like that. But mainly, that was a -- and dare I say I was surprised here quite a few things on COVID and got quite a few assumptions wrong, and I'm glad to be getting this one wrong because at the end of the day, in order to grow at our current pace, if we weren't investing to bring that business on, then I think would be crazy. I mean if we really believe that that we do our pipeline would translate into a win rate that would translate into $8 billion of GDV in 3 to 4 years for these programs at maturity. And you've got 100% -- 90%, 100% conversion rate. And you've got $80 million in 3 to 4 years of revenue growth given that's not not to be resourcing that now to be able to get there. So that's where it's heading. -------------------------------------------------------------------------------- Elijah Mayr, CLSA Limited, Research Division - Research Analyst [22] -------------------------------------------------------------------------------- Yes. And then, I guess, going forward, I guess, looking forward to FY '22 and onwards, I guess, is the employee base that you've now invested in, in place for the overheads, is that going to continue into FY '22 under -- is that range to continue? Or should we expect those OpEx costs to increase in line with revenues? Is there further investment to be going there? And I guess, just relating that to the PFS acquisition, as you continue to integrate that? Is there going to be cost stripped out that may sort of lower that number? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [23] -------------------------------------------------------------------------------- Yes, that's a good question. I mean I think the -- so we'll add another 10 to 15 kind of FTE by the end of the year. So we won't have the full impact of their cost in the second half because they'll be added gradually through the second half. So in fact, I record we would start FY '22 with circa 500. So yes, those peak would be on from there. We haven't sort of worked through what our budget position would be for next year and what kind of headcount we would want to look at to support the business. And most of what we brought on, I think, is a view of being able to support what we're seeing now and not being caught short. So I would be I'd be very surprised if -- in fact, I'd be shocked if we added 50 more FTE in FY '22. I think we're tooling up now to be able to bring on that level of volume and revenue. I'd be -- but there's a scale effect there. So I'd be surprised if we see anything like that in '22. -------------------------------------------------------------------------------- Elijah Mayr, CLSA Limited, Research Division - Research Analyst [24] -------------------------------------------------------------------------------- Yes. Understood. And just relating to PFS. I think previously, you have sort of said you might be able to get up to sort of $3 million sort of cost out realized. Is actually that largely realized or is that sort of -- is there more benefit that we had since you integrate the business? Or is it OpEx-based? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [25] -------------------------------------------------------------------------------- Yes, the OpEx base. I mean the -- so 2 points that -- of that $3.5 million synergy benefit, which is, call it, $6 million, $1 million (inaudible) of that was the integration into faster payments and just getting rid of that cost immediately. Our costs, for example, by using third parties to facilitate that cost is about 20p a transaction. And as a direct member, will cost us 2 pence of a transaction. So there's the GBP 480,000 and that effectively disappear on July 1. So there's 1 million as of that 6 million that impacts the bottom line on -- in FY '22. And the rest of it is largely the conversion of programs from third-party processes to our own. And the way that we'll do that, I mean, it has to be phased because you can do it -- you can what they call recard someone. So if we've got millions of active cardholders in the market, we can go and recard everybody but at an expense of, you can imagine 2 million pieces of (inaudible) cards and micros of $10 million to go through that recarding exercise, but it has a significant risk because if you get something wrong in that recarding exercise, you can lose customers and cardholders. So typically, you would just convert those cards over as they expire, which is exactly what we did here with Salary Packaging. So we launched Salary Packaging with heritage and on the Visa network. We then converted across the Mastercard where we are the issuer, but we did it over 3 years, just as the cards naturally expired. So there'll be 1 million of the fixed falls to the bottom line of FY '22, I would say, another 1 million of fixed falls to the bottom line next year through processing savings. And I would say, the other 4 million of the 6 million comes in FY '20 -- in FY '23 because that's when the majority of the cards will have migrated from the third parties on to our own. -------------------------------------------------------------------------------- Elijah Mayr, CLSA Limited, Research Division - Research Analyst [26] -------------------------------------------------------------------------------- Excellent. Appreciate the detail and congrats on the results. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Your next question comes from Brendan Carrig with Macquarie. -------------------------------------------------------------------------------- Brendan Carrig, Macquarie Research - Research Analyst [28] -------------------------------------------------------------------------------- Just a few quick ones from me. Can you just confirm, Rob, if you mentioned the upside or further upside in the second half from the breakage side of things? Is there any of that factored into the guidance? I'm assuming it's not. -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [29] -------------------------------------------------------------------------------- Small amount of it's factored in. We've been quite conservative. We're still assessing it. We've got -- we've obviously got another couple of months of data through January and 2017 is a fair that we can look at. There's nothing telling that there's anything changing, but it's just trying to be conservative because every month, you get more data and you get further away from the date of [coal] activation, you get more confidence in that. And so that's why we sort of set the threshold, and we haven't taken anything on cost loaded after the December 1, 2019. So on those cards, we've now got a decent amount of data. So a fair degree of confidence of what's going to come through. But just playing it safe until we sort of get -- really finish the analysis and get a bit further along the line. -------------------------------------------------------------------------------- Brendan Carrig, Macquarie Research - Research Analyst [30] -------------------------------------------------------------------------------- Okay. And then, Tom, just your comments on M&A just given the activity that we are seeing. Maybe just give a bit of a quick update just in terms of the integration of PFS and if there's any work left to do, and would that preclude you from taking on a more material size transaction from an M&A front or would it be still down more in the bolt-on sorts of things that we should be thinking about if there is anything coming along? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [31] -------------------------------------------------------------------------------- Yes. Good question. Now I mean the beauty of PFS was -- it was, I think, what we called kind of an integration in life business and the fact that it didn't require us to migrate anything from their existing processing systems, for example, onto our own because they've already spent $4 million building their own, and they're in the process of doing that anyway. So operationally and kind of from an IT perspective, it was relatively integration light, which was good. That integration is largely complete. I mean, the -- as of the end of February, the website disappears at an EML website -- EMLs disappear. The teams are fully integrated European business and their European business is the other one unit. So that is one new CEO from the end of February onwards. Culturally, they were moved onto our -- under our systems, early days. We brought them onto our STIP, for example, because we wanted -- we don't want to have employees in a team with we're paying bonuses to 1 and not to another. So that was an investment decision that is in the millions that we really want us to do because it's what part of the payments system, what part of the payments industry is in. So that -- yes, I would say we're large. Yes, I would say we've largely frozen the back of that creates integration. So would be more than able to look at other deals, whether it bolt-on whether they're larger, more strategic deals. -------------------------------------------------------------------------------- Brendan Carrig, Macquarie Research - Research Analyst [32] -------------------------------------------------------------------------------- Okay. That's clear. And then one last one. Just maybe any comments that you'd like to make on the a low profitability, large reward program, but just what's happening with the New South Wales Gaming charter more recently given your relationships with the new South Wales government with (inaudible)? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [33] -------------------------------------------------------------------------------- Yes. We've spoken to -- late last year, we spoke to -- we spoke to most of the manufacturers of PAC machines just to see what their take on it was. And as is common, their response will be, we've got a watching brief on this. And then just from where I sit, not being an expert or being that close to that industry, but there certainly seems like there's more momentum building to change in that regard. And so if there was, we would have to be front and center because it will be sizable. I mean the (inaudible) is only in pilot, but there's I think the published information and there's been several hundred thousand users of the transport network. So if it did -- if the pilot expanded and went further than having that relationship with the government is a great thing, and we get to kind of prove our stripes. And then hopefully, that would position us well if that does gain traction, and there's a real push to do it. I guess the sense is a free bit of stuff to play on under the surface before it becomes a reality I don't know, tile kind of makes me think there's something that will happen there in the next couple of years anyway. -------------------------------------------------------------------------------- Brendan Carrig, Macquarie Research - Research Analyst [34] -------------------------------------------------------------------------------- Yes. I agree with that. I guess pubs and clubs is strong obvious. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from Ron Shamgar with (inaudible). -------------------------------------------------------------------------------- Ron Shamgar, CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies [36] -------------------------------------------------------------------------------- Yes. Well done, terrific results. I'll just go really quickly, but you mentioned you want to over a card program, also a competitor in Europe. Can you talk to meaningful net of that? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [37] -------------------------------------------------------------------------------- Yes. Well, the -- yes, so of the company because when we launched our gaming programs in Australia, companies -- some other gaming operators in Europe, work with a different provider, which we -- at the time, and some years ago at the time (inaudible), but that was necessarily set up unsuccessfully (inaudible) memory serves me, September last year. I think they were all converted across I take the number of cardholders, it's north of 50,000 and well north, so I probably would. So it's a sizable that, but is that number. So just (inaudible) on. And obviously, that then gives us a accretion base for immediate revenues from the minute it was launched. -------------------------------------------------------------------------------- Ron Shamgar, CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies [38] -------------------------------------------------------------------------------- Yes. Okay. And then, I mean, you mentioned you're winning for 10 deals in your pipeline. So there's the deals that you know well, is it sort of -- is it based on price or it is based on lateral capabilities, which is what you're building out through this in? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [39] -------------------------------------------------------------------------------- Yes, that's a good question. I would say it's a bit of mismatch of things, to be honest. As we said last year in the cost deals right not being able to support them on the lead inward that way. That's for sure. What we launched on the other Accelerator initiatives, but that will be fully (inaudible) the U.S. by the end of June to (inaudible) by the end of August and September. So we have for the same functionality there on Mastercard (inaudible) on the Visa network. So some of those (inaudible). We couldn't facilitate and that drives back to fact that actually whether their small companies or larger companies, Mastercard, these -- they use their own balance sheet is to try to get these companies choose one or the other (inaudible) and that could be the form of financial assistance, it could be (inaudible), it could be research, it can be all sorts of stuff. So it -- I wouldn't say it's common, but (inaudible) comments, but to actually talk to the start-ups and for that company to say, I've already decided to go on there on the Visa network. And a year or 2 ago, they would have been agnostic to whether they were on these are (inaudible), but they're now getting some kind of incentive to choose 1 or the other. So some of the loss would have been back. And so we'll clearly address that over the next 6 months. And then hopefully, that opens up a whole different wealth of opportunity for us in these regions on the -- for customers that are customers that are choosing Visa. The next bit, I would say, would be price. We've got a pretty -- there are companies out there who have a strategy and that strategy might be fine of yet -- and these are U.S. companies, in particular, about growth, growth, growth, but never intend on making profits, right? I mean we're seeing that in all sorts of industries right in the TMT you can point to companies in the U.S. with $10 billion, $15 billion market cap we annotated of earnings and probably never going to have a reearning and we just don't at that -- we call that irrational capital, and we just don't -- we exist at that point because we're not driven to -- we're not -- this business hasn't been designed got 100% a year, but selling profits and cash at the window. So it's going to be, in my terms, which might sound like kind of proper business of growth, revenue and and cash. So certainly, some deals were on price. If they're really material once at a 5-year client thing, obviously, you sharpen the pencil and not then you just make the decision to kind of walk away. We don't see much -- I wouldn't say product is a cause of not winning that at the moment, but I could see that in years to come, you would certainly want to have a beat of our product because we are seeing companies now saying to us, okay, like my example before we're going to check. I want to be able pay part of my customers' fees to a card, I want part of it to (inaudible) and I want part of it to make. Can you do that? And you just got about say, yes. And all that bill be doing now is to be able to say yes, because they've got a -- they're not going to say, okay, well, I'll just wait for you to do it. If you like, now I want it now. So some of products, but that's why we're going to have Al continue to invest in product. The other -- the 49% -- the 40% win rate also comes to be able to never come to fruition as well. So it can be companies that defer the decision, companies are looking to obtain funding, but don't obtain funding and therefore push it back. So there's a mismatch. There's not really 1 clear thing that told point out. -------------------------------------------------------------------------------- Ron Shamgar, CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies [40] -------------------------------------------------------------------------------- Yes. Okay. And then out of the $136 million of cash, how much is really free cash, if your working capital and then payments for deferred considerations and so on? -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [41] -------------------------------------------------------------------------------- I mean the e-comm, the deferred consideration, there's a certainly amount that's tied up for that coming through into August 2021. There's vendor lines during '23 and '24, but I mean, we're pretty cash generative as you can see. -------------------------------------------------------------------------------- Ron Shamgar, CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies [42] -------------------------------------------------------------------------------- More I guess calendar year, I guess. So how much of that, another way as how much of that is -- can be deployed for acquisitions? -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [43] -------------------------------------------------------------------------------- No. But we haven't got any secured debt as well, say is a very large pool of available capital, but we haven't given out the split because obviously, that would involve giving out the year 1 earn-out estimate for PFS, and we haven't given that out. So suffice to say we've got quite a large pool of capital available to deploy. -------------------------------------------------------------------------------- Ron Shamgar, CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies [44] -------------------------------------------------------------------------------- Yes. Okay. And then just last one for me. You gave guidance, but you actually quantify the GDV for the full year? -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [45] -------------------------------------------------------------------------------- No. (inaudible) well, we don't -- we didn't because there's a lot of -- there's moving parts in terms of gift and there's moving parts in terms of GPR. It's sort of really the bottom is just a function of -- we've sort of modeled different scenarios of how we think gift will go and how we think different GPR programs will go. -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [46] -------------------------------------------------------------------------------- It's probably an oversight to be honest, I'm not sure we thought much about it to be (inaudible) because we guide for just that GDV is not a financial guidance measure, but we can certainly come back and say what we think the GDP will be. I mean there's -- Rob you can calculate. -------------------------------------------------------------------------------- Ron Shamgar, CTSP Funds Management Pty. Ltd. - Head of Australian Equity Strategies [47] -------------------------------------------------------------------------------- I guess the reason is you sort of -- you're trying to get that revenue margin. I think 93 bps was the first half. And just whether they're sort of going over the next couple of years, can you get that over 100 bps? -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [48] -------------------------------------------------------------------------------- I would bank on it basically money flat. I mean it's really the overall group at 93 bps is just a mix -- the segment mix issue. So if you model it out segment by segment, they're pretty flat. Maybe it'll creep up towards 100 bps as things like multicurrency in PFS come back. That will help drive it up a little bit. But broadly, I would just model it on a flat group, 93 bps. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Next question comes from William Cunning with Carter bar Securities. -------------------------------------------------------------------------------- William Cunning, [50] -------------------------------------------------------------------------------- I just had 2 quick questions around the GPR business, if I could. The GPR business, the margin looks like it was about 122 basis points, which is down a fraction from where it was at the second half. Just a bit of question around the mix of the digital banking and the government. I think in the past, it was about sort of mid- to low 40% of the business age, has that changed to that split change considerably? And is that something that you expect to be considerably different going forward? Is that mix now different? -------------------------------------------------------------------------------- Robert Shore, EML Payments Limited - Group CFO [51] -------------------------------------------------------------------------------- It's moved around a little bit there, Will. I mean you've got probably a bit more government coming through at the moment, but that brings down the yield very slightly. Multi-currency hasn't improved at all yet. Just with lockdowns, it's not really expecting that to improve. Maybe summer, European summer, we'll see some improvements there. So that's moving it around, but you're talking pretty similar yield to what we saw in previous quarters. And when you look at the overall group GPR segment, it's very consistent for the last 3 quarters. So I model it, I wouldn't try and break it down into too many pieces because I think that people get into trouble trying to -- we don't give enough information out to model out what government is doing and what digital banking is doing, whatsoever packaging were gaming like or too quickly, whereas if you look at the overall GPR segment and you use that yield and you extrapolate your volumes based on where you want to go with that, you get to a pretty accurate answer. -------------------------------------------------------------------------------- William Cunning, [52] -------------------------------------------------------------------------------- Yes. Sure. And then I think you answered my second question just on the multi currency. And then the only other question I had was just around the U.S. gaming, that the 200 run rate sounds very positive. In the past, I think you've said that that's more around the poker side of things as opposed to the sports betting. Is that something that you guys had previously identified as one of the drivers of the U.S. Gaming and GPR business or is that sort of a new pace of the driver for that segment? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [53] -------------------------------------------------------------------------------- Yes. I think that -- I think we didn't know what we did not well actually because we've -- most of our programs in that segment have been traditional sports betting programs. And in the U.S., we launched a number of programs in poker. And so you're -- and social gaming and things like that. And so you are -- I guess, you need the data to say how do the customers perform, right? And we didn't know that really good not to be frank until we saw it because, for example, our sports betting customer is more transaction also they're betting, winning, removing, whereas poker there playing, exiting the game, but leaving their pool there and then coming back to the game and so on, but the kind of several brands we've got over in the U.S. So they're certainly not household names. I said, they're not the FanDuels and the DraftKings and these kind of guys, but we -- I think we launched in the U.S., I say, I guess, probably 18 months ago, I guess, when (inaudible) first went live. And so to be on a $200 million run rate is a positive and it means that, that segment can grow for us in the future. -------------------------------------------------------------------------------- William Cunning, [54] -------------------------------------------------------------------------------- Future. Yes, absolutely. And just only on that interchange, is the implication there then on those programs, the margin -- the revenue conversion margin might be a fraction lower than maybe the 140, 150 basis points expected in U.S. Gaming? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [55] -------------------------------------------------------------------------------- Sorry, say it again. -------------------------------------------------------------------------------- William Cunning, [56] -------------------------------------------------------------------------------- Just on the -- given the difference in interchange you just mentioned on the poker side of things, did that does that imply a sort of slightly lower margin on that business as opposed to the 140 to 150 expected in the U.S. segment? -------------------------------------------------------------------------------- Thomas Anthony Cregan, EML Payments Limited - Group CEO, MD & Director [57] -------------------------------------------------------------------------------- No, it's a same. Yes. Because that we earn fees from our customer, but then we earn interchange when cars are transacted, we were an interchange on ATM withdrawals and so forth. So I think the blend will be in the unchanged there. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.